Ratings agency Fitch is warning of a potential wave of bank bailouts echoing those of 2008, with smaller cash-strapped mainland banks having to be rescued.

'If we are looking beyond next year, and if the macro environment is not improving, I think it is definitely possible that the type of bailouts we saw in other countries in 2008 could happen to smaller banks,' said Charlene Chu, senior director at Fitch Ratings, and author of a report on mainland banks' declining liquidity.

Mainland banks, especially tier-two lenders, have been aggressively creating wealth management products to attract deposits since 2007. These products offer to pay depositors a return - based on the performance of the underlying assets - upon their maturation, according to the report. Nine and a half per cent of total bank deposits had migrated to wealth management products by the end of the third quarter, Fitch estimated. The outstanding amount of these was hitting an estimated 7.7 trillion yuan (HK$9.4 trillion).

However, it was uncertain whether banks would have the cash to repay investors, or whether the underlying wealth management assets were performing well, Chu said. There were limited guidelines on the disclosure of the underlying products, which would include corporate bonds, Ministry of Finance bonds, and bank assets.

Most wealth management products do not guarantee the principal, Chu said, and banks can choose not to reflect them on their balance sheet until they mature. As such, it is difficult to arrive at a fair estimate of the total amount of debt involving wealth management products, which may well exceed 7.7 trillion yuan.

Banks can also easily set the start date and end date of the wealth management products in a strategic way so as to avoid having to report them on the balance sheet at an inopportune time, according to the report.

Smaller banks may need help from the mainland's central bank if they run out of cash to pay customers for these wealth management products. Tier-two banks carrying a BB Minus rating from Fitch had already seen non-deposit liabilities surge more than 70 per cent to 1.34 trillion yuan, up from 786 billion yuan between 2009 and this year, Fitch said.

The recent macroeconomic upheaval affecting the export and property sectors could also add to banks' liquidity problems, the report said.

'The real estate sector represents one-fifth of the loan book in the Chinese formal banking system. A massive default would cause a liquidity shock across the banking system, originating from banks with large property exposures,' said senior ANZ economist Raymond Yeung.

Stanley Li, a banking analyst with Mirae Asset Securities, said local governments faced slow land sales and dwindling tax income from the property sector, which could impede their ability to repay bank loans. This could hit small and medium-sized banks, which are more reliant on corporate deposits, which are less stable than retail deposits.